The Reserve Bank of India (RBI) periodically issues sovereign gold bonds which are efficient alternatives to investment in physical gold. Currently, the SGB Series VI is open for investors.

Apart from being market-linked options to invest in gold, SGBs have other attractive benefits.

Some features:

• SGB Series VI issue will close on 25 October.
• The price of one gram of gold has been set at Rs 3,835.
• Rs 50 per gram discount will be offered to those applying online.
• The minimum investment is one gram.
• These bear interest from the date of issue at the rate of 2.50 percent (fixed rate) per annum on the nominal value.
• Interest is credited to the investor's bank account semi-annually.
• The tenor is eight years with exit option after the fifth year to be exercised on the interest payment dates.
• Sovereign Gold Bonds are issued by Reserve Bank India on behalf of Government of India.
• These are sold through scheduled commercial banks (except small finance banks and payment banks), SHCIL, designated post offices, NSE and BSE.
• In addition to gains from changes in the metal's prices, these bonds earn interest (coupon) income.
• SGBs are tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI. This means that even if you fail to participate in the current issue, you can purchase them or bonds from previous issues on NSE or BSE through a registered stockbroker from subscribers who wish to sell them. Similarly, one can also exit by selling the bonds at the exchanges before maturity.

If you wish to add these to your portfolio and diversify your investments, you need to understand how gains made from these are taxed.

What are the tax implications on Sovereign Gold Bonds at various stages?

• If you hold the SGBs till maturity, these do not attract capital gains tax. This means that at the time of redemption, all gains are tax-free. This kind of capital gains tax exemption is not provided on alternatives like gold ETF or gold mutual funds.
• Interest earned on these bonds is taxed according to the tax slab that the subscriber falls under. There is no TDS (tax deducted at source) on the interest income. Interest income you make is clubbed with your total income for the financial year for income tax returns purposes.
• If you chose to exit from these bonds before maturity, tax is applicable on the capital gains made. One can exit SGBs in two ways- 1) sell them on stock exchanges after they are listed 2) opt for encashment/redemption option after completion of five years from the date of issue.
• If you chose to sell SGBs at stock exchanges, gains made from the sale within three years from the date of purchase is considered as short-term capital gains. Short-term capital gains are taxed based on your income tax slab.
• If you choose to sell SGBs at the stock exchanges after completion of three years from the date of purchase, the capital gains will be considered as long-term and taxed at 20.8 percent (including cess) after indexation benefits.